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Tencent has beaten analyst expectations and reported a strong first quarter, with the Covid-19 crisis benefiting the gaming business.
A Refinitiv consensus had predicted that the Chinese tech giant would see revenue of 101.4bn yuan ($14bn, £11.6bn) and a profit attributable to shareholders of 23.83bn yuan.
In reality, Tencent’s first quarter revenue jumped 26 per cent year-on-year to 108bn yuan, while profit rose 6 per cent on the same basis to 28.9bn yuan.
Tencent Holdings Limited
In a statement the company said: “Games serve important roles in keeping players entertained and connected, especially during the stay-at-home period. For mobile games, our studios released attractive content and our publishing teams ran compelling in-game events and activities, resulting in higher DAU (daily active users).”
In the past decade Tencent has invested in gaming studios both within and beyond China. It now completely owns Riot Games, the maker of the popular League of Legends. It also has a 40 per cent stake in Epic Games, the studio behind Fortnite, and a 5 per cent stake in French gaming giant Ubisoft.
With such diversification and the success of Call of Duty: Mobile which was developed by its subsidiary TiMi, Tencent has found itself well positioned to profit from a situation where much of the global workforce has been forced to stay at home.
This is not to say that the conglomerate faces no obstacles to future growth. At the close of Wednesday trading Tencent traded down 0.32 per cent at HK$429.60.
Although the company is still up over 14 per cent on the year-to-date, lockdowns in most of China and Asia are easing up and Europe and North America are slowly following suit. As a result the trend of stuck-at-home gamers is dissipating.
Increasingly investors are considering the effects of the largest recession in decades on Tencent’s advertising revenue. This accounts for 16 per cent of the company’s total revenue and is mostly generated through its popular Chinese social media and messaging app WeChat.
China’s ad market is struggling after the country’s first quarterly contraction in GDP since the 1970s. Analysts are expecting Tencent’s ad revenue growth to slow throughout the year.
Revenue from Tencent’s growing fintech division already began to slide in the first quarter of 2020, causing consternation for investors. In its cloud and fintech operations the conglomerate is facing stiff competition from fellow Chinese tech giants Alibaba and ByteDance.
